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All indicators pointing to dollarisation

The Reserve Bank of Zimbabwe (RBZ) boss John Mangudya

THE Reserve Bank of Zimbabwe (RBZ) told us last week that for the first time in the history of independent Zimbabwe, the country received US$11,6 billion in foreign currency inflows last year.

According to RBZ boss John Mangudya, the record US$11,6 billion forex receipts in 2022 against payments of US$8,6 billion also saw “about 70% of domestic expenditure in US dollars and foreign currency deposits and loans constitute about 65% of total banking sector deposits”.

“Total banking deposits were $2,29 trillion as of 31 December 2022, being 65% forex deposits and 35% Zimbabwe dollar deposits. Total banking sector loans and advances were $1,29 trillion, being 64% FX and 36% Zimbabwe dollars,” the central bank governor further noted.

With the RBZ indicating that it will continue to mop up excess Zimbabwe dollar liquidity on the market, having drained about $9 billion by the end of the third quarter of 2022, the major question that is being asked by many is: Has government finally smelt the coffee and is now slowly dollarising?

Honestly speaking, under the current situation whereby foreign currency is dominating transactions at a time when the local currency is fast disappearing from the trading equation, why would anyone see any hope of the Zimbabwe dollar surviving until midyear.

Under such circumstances, it is very difficult to believe that there is still a multi-currency regime in operation in the country when the US dollar is dominating transactions, loans and advances.

For many months, economists have been urging government to dollarise the troubled southern African economy given that the domestic currency has been routed by inflation and has hardly been a currency of choice for nationals ever since its re-introduction in February 2019.

As if cursed by some mythical fiend, the Zimbabwe dollar, having been demonitised in February 2009 when it had been completely obliterated by a 500 billion percent inflation monster, appears to be once again headed for the morgue.

We sincerely believe that the earlier government announces the inevitable, damn the consequences, the better it will be for all of us.

However, given that the country is currently preparing for elections, government will most certainly defer the decision until after the elections, which will prolong the misery of the majority of the country’s workers in both the public and private sectors, who are being paid in the local currency that is increasingly becoming useless as it currently trades at around $1 200 to US$1.

Goods and services are, meanwhile, increasingly being exclusively pegged in US dollars, making it foolhardy for monetary authorities to keep insisting that the multi-currency regime still has a life and the Zimbabwe dollar can hold its own much longer.

While we believe the country must have its own currency to protect its sovereignty, we implore the powers-that-be to get fundamentals right for this to happen.

Currently, everything, unfortunately, points to the second demise of the local currency: Inflation is hyper at 225% as prices continue to gallop north; public debt (foreign and domestic) is hovering at an unsustainable estimated US$20 billion; the country’s current account is chronic as imports far exceed exports; economic growth is sluggish; the country has little to nothing in its reserves in terms of gold to back up the local currency; and trust (a key fundamental) in the currency among consumers long departed.

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